An Indispensable Piece of the Global Jigsaw Puzzle

• Author: Axel Michaelowa
• Position: Senior Founding Partner of the climate policy consultancy Perspectives and a researcher at the University of Zurich
• Pages: 51-51

MAY/JUNE 2010 ❧ Page 51

Copyright © 2010, Environmental Law Institute®, Washington, D.C. www.eli.org.

Reprinted by permission from The Environmental Forum®, May/June 2010

Th e fo r u m

of‌fsets (about 5 percent of current

global fossil fuel emissions). is

would increase total resources avail-

able for sustainable energy, forestry,

and land-use management ef‌forts in

developing countries. Such activi-

ties are crucial to long-term climate

change mitigation ef‌forts. Climate

change mitigation simply can’t be

seen as a national or regionally con-

strained ef‌fort.

e theoretical potential of car-

bon of‌fsets is enormous. Our ability

to transfer more ef‌f‌icient energy

supply and demand technologies to

developing countries than otherwise

would be possible is undisputed.

In principle, such a transfer could

reduce projected long-term carbon

emissions from developing countries

signif‌icantly. ere is little doubt

that incremental f‌inancing of desir-

able energy and forestry measures

around the world could reduce fu-

ture GHG emissions.

I am not arguing that of‌fsets are

the answer. ey are not. ere is no

silver bullet, no magic wand. Solv-

ing this issue will require more ef‌fort

than any other environmental ef‌fort

to date. And yes, of‌fset programs

need to be designed appropriately;

not all of‌fsets are created equal. ey

must be actions that actually reduce

emissions (or increase sequestration)

from what otherwise would have

been the case (without the carbon

market, or in business as usual con-

ditions). e fact that it’s dif‌f‌icult

should not mean we give up. Of‌fsets

are one step on the path to climate

change mitigation — a crucially

important piece, for economic and

political reasons. at’s why the

push for of‌fsets hasn’t gone away,

and won’t.

Laura H. Kosloff, former Senior Counsel

for EcoSecurities Group plc., consults on

climate, energy, and environmental policy

issues.

An Indispensable

Piece of the Global

Jigsaw Puzzle

A M

In just f‌ive years, the Clean De-

velopment Mechanism of the

Kyoto Protocol has mobilized

more than 5,000 greenhouse

gas reduction projects in over

60 developing countries. Project de-

velopers estimate the volume of pre-

2013 emissions of‌fsets from these

projects at over 2.5 billion tonnes of

CO2 equivalent. Reductions come

from a wide variety of technologies

— ranging from thermal destruction

of industrial gases in large chemical

plants to distribution of ef‌f‌icient

charcoal stoves in rural Africa.

In the aftermath of the Kyoto

negotiations, most analysts had seen

the CDM as the Cinderella of the

protocol’s market mechanisms. ey

felt that project-based of‌fsets would

entail prohibitive transaction costs

due to the need to check whether

the project actually makes a dif‌fer-

ence compared to business as usual.

e revenue from selling of‌fsets

would be insuf‌f‌icient to mobilize

entrepreneurs in the highly risky

business environment of developing

countries. Direct emissions trad-

ing between governments or of‌fsets

from projects in industrialized coun-

tries would be much more attractive

than the CDM.

is pessimistic worldview had

underestimated the entrepreneurial

spirit in developing countries. Once

regulators had clarif‌ied that projects

could be developed “unilaterally,”

i.e., would not need the involvement

of a company from an industrialized

country, a real gold rush started.

Obviously, project developers f‌irst

looked for the nuggets lying on the

ground — and found them in the

form of projects destroying the in-

dustrial gases HFC-23 and nitrous

oxide, which generate huge volumes

of of‌fsets at costs that are a fraction

of the sales revenue. Critics argued

that it would be much more ef‌f‌icient

to just pay the costs of installing

the abatement equipment through

public subsidies. In hindsight, this is

easy to say — but no public agency

discovered these abatement options

before the CDM market did. More-

over, it is only fair that developing

countries receive a substantial share

of the benef‌its from mobilizing

emissions abatement.

e availability of cheap of‌fsets

leads to more stringent emissions

commitments in industrialized

countries than in the case where

only costly domestic reductions are

available. Without the access to the

CDM, European industries would

have never accepted the tightening

of their emissions cap under the EU

emissions trading scheme.

e key immediate challenge

of the CDM is the weeding out of

business-as-usual projects. While

regulators introduced thoroughly

ref‌ined additionality tests, still too

many projects are slipping through.

Regulators should resort to meth-

ods used by f‌inancial institutions

to f‌ind out which projects are re-

ally mobilized by the revenue from

of‌fset sales. And in the long run,

advanced developing countries have

to be weaned of‌f the CDM to take

up commitments. is could be

achieved by discounting of‌fsets from

such countries.

Project-based of‌fsets in develop-

ing countries are the success story

of the Kyoto Protocol. ey show

that the market is able to discover

and implement emissions reductions

even under dif‌f‌icult circumstances.

is is heartening given the slow

progress of climate policy in indus-

trialized countries.

Axel Michaelowa is Senior Founding

Partner of the climate policy consultancy

Perspectives and a researcher at the Univer-

sity of Zurich.